CPI inflation tipped to dip as global rate outlook moderates
The upcoming release of Australia’s monthly consumer price index (CPI), covering November 2022, is tipped to report an annualised inflation rate of 6.8% year-on-year, down from 6.9% in October.
According to Robert Carnell, ING Economics’ regional head of research, Asia Pacific, this would represent a move in the right direction, but would not be enough to dissuade the Reserve Bank of Australia (RBA) from announcing further hikes to the cash rate.
However, the forecast CPI improvement would come off the back of a shift in the US Federal Reserve’s monetary policy posture.
Minutes from the latest December Federal Open Market Committee (FOMC) meeting suggested members supported “balancing the risk of under versus over tightening” amid evidence of a slowdown in wages growth.
The FOMC flagged the importance of considering the cumulative tightening of monetary policy, including the lagging impact of tightening on economic activity.
Tom Kenny, senior economist at ANZ Research, claimed this “notable shift” could open the door to “another step down in the pace of tightening” at the upcoming FOMC meeting.
“This shift is more than we expected given public comments from Fed officials,” he wrote.
Federal Reserve chair, Jerome Powell, also hinted at reducing the size of future increases to the federal funds rate to 25bps during his monthly press conference.
Despite the tone shift, markets continue to expect the funds rate to hit a peak of 5.1%, up from forecasts of 4.6% in September. This would imply a further 75bps in tightening over the course of 2023.
Local markets are expecting the RBA to follow suit, with the cash rate expected to hit 4% by September.
Over the medium term, markets expected inflationary pressures to ease.
Investment advisory company Aviva Investors expected both year-on-year and monthly rates of inflation to slow across most developed economies over the next quarter.
“A key question is whether inflation will fall to levels that allow central banks to stabilise interest rates,” the firm noted.
“Another is whether the ultimate path of rates slows the economy modestly or leads to a deeper recession, threatening company profits.”
AUTHOR
Charbel Kadib
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
